GlaxoSmithKline (NYSE:GSK) released fourth-quarter 2011 and full-year financial results Tuesday, which happens to be Charles Dickens’ birthday. Somehow I think it’s fitting that Britain’s largest pharmaceutical company discussed its finances on the same day that one of its greatest writers was born. GSK’s results and outlook mark a strong contrast to Britain’s second-largest pharma company, AstraZeneca (NYSE:AZN). With apologies and all due respect to Dickens, call it “A Tale of Two Pharmas.”
Let’s start with AstraZeneca, which released its results last week. The company announced a restructuring that would result in the slashing of 7,000 workers including 2,200 staffers in R&D. While the drugmaker is not abandoning neuroscience drugs, the company is scaling back its presence in that area. AstraZeneca will be creating a new virtual neuroscience Innovative Medicines unit comprised of small teams of AstraZeneca scientists doing R&D work externally. Those teams will work with academic and industry partners around the world. One of AstraZeneca’s existing partners in neuroscience drug development is Winston-Salem, North Carolina company Targacept (NASDAQ:TRGT), which is developing an antidepressant that AstraZeneca has the right to pick up for commercialization depending on the drug’s progress. But to date, the compound TC-5214 has failed in two of four planned phase 3 clinical trials.
Behavioral Health, Interoperability and eConsent: Meeting the Demands of CMS Final Rule Compliance
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Since AstraZeneca’s first restructuring in 2007, the company has cut more than 21,000 jobs. With the latest restructuring AstraZeneca is closing two neuroscience R&D sites, one in Sweden and another in Canada. A total of 2,200 R&D positions globally will be eliminated.
GSK, which has its U.S. headquarters in Research Triangle Park, North Carolina, has not been without struggles of its own. The pharma has had some layoffs in recent years and like AstraZeneca, GSK has scaled back on some of its neuroscience efforts by paring back programs that did not look like they would be successful. But the company has implemented a different approach to R&D with its “Discovery Performance Units.” Started under CEO Andrew Witty in 2008, the model breaks scientists into small teams focused on researching a particular disease. Each of the 38 DPUs gets a portion of GSK’s R&D budget. Every three years, scientists must justify their work in order to secure more funds for research. The goal was to restore to Big Pharma the culture and productivity of startup companies by tying funding to progress subject to review every three years. The DPU review has resulted in four new DPUs being created, three closing, six receiving increased investment and five having their investment decreased. Here’s how Witty, in a conference call to discuss results, assessed the DPU performance:
What this tells you is that we are absolutely focused on a disciplined assessment of progress, and that we’re not prepared to just allow organizations to drift on for five, 10 years against a failing target or a failing hypothesis. We are going to consistently prune and fertilize the DPUs to ensure that they get stronger and stronger as we go forward. But core within the whole DPU change has been the creation of greater accountability and a greater personal capacity for our scientists to really fulfill that potential.
The new R&D approach is demonstrating productivity. At least four drug candidates could be filed for regulatory approval in 2012, including Relovair, the respiratory drug expected to succeed blockbuster drug Advair. Other drugs are also advancing. With the DPU review complete, GSK expects 30 new drugs to move into late-stage development in the next three years.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
MoneyWeek‘s Phil Oakley calls GSK the better investment bet. Both pharmas face headwinds in that governments are paying less for drugs and the weak European economies are a drag on growth. Oakley writes that while both of those two effects cost AstraZeneca $3 billion in lost 2011 sales, GSK’s loss was roughly $500 million. But more than the sales of existing drug products, Oakley notes the robust potential of GSK’s drug pipeline. While GSK expects to have 30 new drugs in late-stage development in the next three years, “Astra investors are wondering where the next blockbuster drug is coming from.”
Drug development brings no guarantees and there are indications that Relovair may not be as strong as a successor to Advair as GSK had hoped. But GSK is putting itself in a position to discover, develop and position for approval of a wider array of potential drug candidates. It’s a strategy that should pay off in the best of times, and the worst of times.
